Monday, April 4, 2011

Verizon 100G plans good for Juniper, and maybe Cisco

Shows customers need capacity now and can't wait for better price/performance

This week, Verizon announced it is turning up 100G Ethernet routes in the US at the end of the second quarter using Juniper routers and Ciena optical transport gear. The routes will be Chicago to New York, Sacramento to Los Angeles, and Minneapolis to Kansas City.
That Juniper won this business is no surprise - Cisco's rival is doing the same in Europe with Verizon; and Verizon is a 10% revenue customer of Juniper's and perhaps its biggest. But turning up 100G Ethernet routes in the US and Europe could also be a great sign for the router market overall.
According to Goldman Sachs -- quoted on the site -- Verizon is deploying the 100G routes with Juniper's T1600 core router instead of the newer T4000, which is expected to ship in the second half of the year. Also, 100G is still very pricey, especially compared to 40G Ethernet.
These two factors indicate that core capacity is needed now. Service providers can't wait for newer routers or for better price/performance from 100G Ethernet.

Notes Goldman Sachs:
100G optical equipment is still at a significant premium to 40G, implying that demand for core network capacity is high enough to trump the desire to wait for the significantly better price/performance of the new product cycles later this year. This supports our thesis that the routing market (about 50% of Juniper sales) will continue to grow at an above-consensus rate of around 20%.
Ticonderoga Securities is a bit more conservative. Citing Dell'Oro figures, the investment firm points to an overall router market - enterprise and service provider - increasing 10% this year, to $13 billion. The service provider core and edge will account for $9.5 billion of that, up 11% from 2010.
Core routers were 31% of the service provider router market in 2010, Ticonderoga says, again citing Dell'Oro figures.
Whether the market grows 10% or 20%, the Verizon deal and 100G Ethernet deployments overall are positive signs for Juniper - and should be for Cisco as well, unless Juniper keeps its 100G momentum going at Cisco's expense.

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